business stratergy and management
etimadkhan
GroupCaseStudy.docxGroup Case 1
Team Members
Etimad Uddin Khan Mohammed (98326)
Abdul Moin Khan Lnu (199229)
Bose Babu Vanarasa (180721)
· Give a brief history of Wal-Mart ?
Ans:-
In the late 1940s, when Sam Walton was franchising a Ben Franklin’s variety store in Newport, Ark., he had a simple but momentous idea. Like any retailer, Walton was always looking for deals from suppliers. Typically, though, a retailer who managed to get a bargain from a wholesaler would leave his store prices unchanged and pocket the extra money. Walton, by contrast, realized he could do better by passing on the savings to his customers and earning his profits through volume. This insight would form a cornerstone of Walton’s business strategy when he launched Wal-Mart in 1962.
The quest for low prices came naturally to Walton: He was freakishly cheap. Although he was ranked as the richest man in the United States by the 1980s, he continued, it is said, to have his hair cut by the local barber, a $5 expense that he never supplemented with a tip. (Perhaps he wasn’t satisfied.) Cost-cutting was, as one might also expect, an obsession in the Wal-Mart culture, and Walton was almost as chintzy with his executives as he was with his cashiers. On business trips, everyone, including the boss, flew coach, and hotel rooms were always shared. Even a cup of coffee at the office required a 10-cent contribution to the tin.
But coffee taxes only went so far. Walton understood that a major requirement for keeping costs down was controlling the payroll. As he would write in his 1992 autobiography, Made in America, “No matter how you slice it in the retail business, payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profit margin.” Not only did Walton prefer to hire as few people as possible, but he also dreaded paying them more than he had to. Unions were particularly feared, and Walton did everything he could to fight them, almost always successfully.
If such a regimen seems stifling, Walton’s employees nevertheless accepted it. In part, it was because Walton framed his cheapness as a crusade on behalf of the lowly consumer and as a quest for a better life for all Americans. It was also because he lived an outwardly modest life, driving an old truck with his hunting dogs in the back. Mostly, it was because he had charisma. Even when Wal-Mart grew outsized, Walton made a point of keeping in touch with his employees on the ground or, as he termed them, his “associates.” This would often involve flying from store to store — Walton had a pilot’s license — for impromptu visits.
But Walton’s ability to keep his staff happy also relied on a sense of when to let penny-pinching take a backseat to other priorities. In 1985, amid anxiety about trade deficits and the loss of American manufacturing jobs, Walton launched a “Made in America” campaign that committed Wal-Mart to buying American-made products if suppliers could get within 5 per cent of the price of a foreign competitor. This may have compromised the bottom line in the short term, but Walton understood the long-term benefit of convincing employees and customers that the company had a conscience as well as a calculator. He also made sure to give his staff a stake in the company. In 1971, he introduced a profit-sharing plan that allowed employees to put a certain percentage of their wages towards the purchase of subsidized Wal-Mart stock. For employees who stuck around, this could mean quite a bit of money. According to a truck driver named Bob Clark, quoted in Walton’s autobiography: “[Walton] said, ‘If you’ll just stay with me for twenty years, I guarantee you’ll have $100,000 in profit sharing’ … Well, last time I checked, I had $707,000 in profit sharing, and I see no reason why it won’t go up again.”
Equally important was Walton’s ability to sell employees on the notion that working at Wal-Mart meant limitless opportunity. Here, from Fortune, is a portrait of Walton at a Saturday-morning meeting in 1989:
[Walton] proposes that whenever customers approach, the associates should look them in the eye, greet them, and ask to help. Sam understands that some associates are shy, but if they do what he suggests, “It would, I’m sure, help you become a leader, it would help your personality develop, you would become more outgoing, and in time you might become manager of that store, you might become a department manager, you might become a district manager, or whatever you choose to be in the company…It will do wonders for you.” He guarantees it.
And things could get downright cultish:
Then, just to make sure, Sam asks the associates to raise their right hands and execute a pledge, keeping in mind that “a promise we make is a promise we keep.” The pledge: “From this day forward, I solemnly promise and declare that every customer that comes within ten feet of me, I will smile, look them in the eye, and greet them, so help me Sam.”
Of course, Wal-Mart’s success relied on more than just charisma and thrift. Technology, in particular, put the company ahead of its competitors. Already by the 1970s, Wal-Mart was using computers to link its stores and warehouses. Sales data allowed Wal-Mart to keep track of specific items and reduce inventory miscalculations. Only years later would Kmart realize how far it had fallen behind. Throughout Walton’s career, a focus on innovation of this sort would make Wal-Mart a consistent leader in efficiency.
When Walton died in 1992, the adjustment to a post-Sam environment proved difficult. Although Wal-Mart executives had emphasized for years that their company depended on a set of principles and habits more than it did on any one person, Walton’s death wound up marking a fateful shift in how the company was perceived.
The first blow fell only months later when “Dateline NBC” produced an exposé on the company’s sourcing practices. Although Wal-Mart’s “Made in America” campaign was still nominally in effect, “Dateline” showed that store-level associates had posted “Made in America” signs over merchandise actually produced in far away sweatshops. This sort of exposure was new to a company that had been a press darling for many years, and Wal-Mart’s stock immediately declined by 3 per cent. While the “Dateline” flap was short-lived, Wall Street soon found other reasons to lose faith in the company. Profit margins were declining, yet David Glass, who was Wal-Mart’s CEO at the time, chose to make ambitious investments in distribution, technology, and construction. Such risk-taking, while smart, scared off investors at the time, and, by 1996, Fortune was even mocking the company’s “everyday low stock prices.” It was no longer the feisty little chain out of Bentonville.
But it wasn’t just Wal-Mart’s image that began to change after Walton’s death. It was also the way the company did business. Wal-Mart’s new leaders took to heart one element of the founder’s business philosophy — the importance of reducing costs — but they didn’t show his intuition about the importance of making employees feel as though they had a stake in the company. They were already at a disadvantage as it was. Wal-Mart’s rate of growth was impressive but slower than in its early years — the inevitable result of becoming so big — and this weakened the appeal of such incentives as stock ownership. But character also played a role. The company’s focus on saving money was leading it to make unrealistic demands of local managers, particularly with regard to payroll, and this pressure would eventually lead to serious trouble.
For a while, though, it worked. Between 1997 and 2001, the company’s stock value increased by over 500 per cent, rising by 70 per cent in 1997 alone. This undoubtedly helped to mollify employees who’d been unhappy with the slump earlier in the decade. Between 1996 and 1999, sales increased by 78 per cent while inventory rose only 24 per cent, a feat Fortune lauded as “mind-bending.” Today, with $288 billion in annual revenues (more than Switzerland’s GDP) and over $10 billion in profits, Wal-Mart is the world’s largest corporation, according to 2005 Fortune 500 list. It operates over 5,000 stores worldwide and employs over 1.6 million people — 1.3 million in the United States alone.
That growth has been accompanied by two distinct kinds of perceptions among the public. On the one hand, Wal-Mart has been celebrated for its business innovations, which have set a new global standard for efficiency. On the other, it has been condemned for its hard-charging business practices. One of the most prominent attacks came last November, when filmmaker Robert Greenwald released Wal-Mart: The High Cost of Low Price, a documentary that excoriated the company for its approach to unions, independent retailers, outsourcing, and wages and benefits.
Washington, too, has gotten involved. In 2003, in the run up to the primaries, Democrats began to make an issue of Wal-Mart’s wages and benefits. In 2004, Rep. George Miller of California released a report called “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart.” And last year, organized labour put together two Washington-based groups: Wake Up Wal-Mart, backed by the United Food and Commercial Workers (UFCW), and Wal-Mart Watch, supported by the Service Employees International Union (SEIU). Staffed by prominent veterans from the campaigns of Howard Dean and Wesley Clark, both groups are devoted to keeping the world, and Washington, informed of Wal-Mart’s alleged misdeeds. For many progressives, the fight to change Wal-Mart represents a central organizing challenge for the 21st century.
There’s evidence that the bad press has taken a toll on the company. A 2004 report prepared for Wal-Mart by McKinsey and Co. found that up to 8 per cent of Wal-Mart customers no longer shop there because of “negative press they have heard.” For the last two Christmas shopping seasons, the company has reported lower-than-expected sales. And in January, Maryland gave final approval to a “Wal-Mart bill,” requiring large employers to spend at least 8 per cent of their payroll on health benefits. Thirty other states are now considering similar bills. Developments of this sort have led the company to form a war room of political PR experts from both parties — including Ronald Reagan’s image-meister Michael Deaver, and Leslie Dach, a media consultant to Bill Clinton — to generate more positive media coverage.
Wal-Mart’s defenders argue that the chain saves lower-income workers billions through its low prices. This is undeniably true, but it’s not a virtue unique to Wal-Mart. The entire sector of discount retailers — from Target to Costco to Best Buy to Home Depot — does much the same thing. Meanwhile, Wal-Mart’s critics tend to focus on the company’s low wages and paltry benefits, or its effect on small towns, or its reliance on outsourcing. But these, too, are by and large sins of the entire discount retail sector. So why pick on Wal-Mart?
The answer is that Wal-Mart really is different. In terms of annual revenue, Wal-Mart is nearly four times the size of The Home Depot, the country’s second largest retailer, and almost twice the size of Target, Costco, and Sears (which includes Kmart) combined. That means the company exerts pressure on the entire sector to imitate its methods — including its treatment of workers. That would be less worrisome if Wal-Mart’s record didn’t stand out within the sector. But there are strong indications that, when it comes to how it treats its employees, Wal-Mart really is worse than the rest. The company finds itself in trouble because, since the death of Sam Walton 14 years ago, something ugly has happened to the way it does business.
Work off the clock:- In a comparison of Wal-Mart with its peers, the obvious place to start would be wages and benefits. But neither Wal-Mart, Target, nor Costco make public their median wage, which many economists argue is the most accurate measure of how a company pays its employees. A 2005 study by Arindrajit Dube and Steve Wertheim of the University of California’s Berkeley Labour Centre, however, sheds some light. Using figures for Wal-Mart released through a sex-discrimination lawsuit, and relying for the rest of the large retail sector on numbers from the March 2005 “Current Population Survey,” the study finds that Wal-Mart pays its hourly workers an average hourly wage of $9.68, while other large retailers average $11.08. (The study adjusts for the fact that Wal-Mart stores tend to be in lower-income areas.) As for health benefits, Dube and Wertheim found that Wal-Mart offers its hourly workers benefits worth 73 cents per hour, while other large retailers offer $1.
The study suggests that Wal-Mart is significantly less generous than other large retailers. In response, Wal-Mart has noted that the Berkeley Labour Centre receives 10 per cent of its funds from organized labour. The company instead cites a study that it commissioned from the consulting group Global Insight, which found that Wal-Mart’s wages are on par with those of other retailers. But whichever study comes closer to the truth, comparisons between Wal-Mart and the large retail sector as a whole don’t tell the full story. After all, discount retailers like Wal-Mart will inevitably pay less than many other large retailers, and why shouldn’t they? Doing so allows them to offer lower prices. Only by focusing exclusively on other discount retailers like Costco and Target can we meaningfully compare Wal-Mart’s wages and benefits to those of its competitors, but we simply lack the hard data on most other outlets to do this.
But there are myriad other ways that employers can cut costs at the expense of workers. And it’s in these areas that we can gather more satisfactory information to compare Wal-Mart to its competitors. The simplest way to save money is to avoid paying people for all the hours that they’ve worked — a practice called off-the-clock work. Of course, Wal-Mart can’t explicitly force employees to work off-the-clock. But it can set payroll targets that are nearly impossible to achieve without doing just that. As one manager explained to The New York Times in 2002, “You got to hit the payroll budget they set for you, but if you’re over, they discipline you.” Plausible deniability, then, becomes essential. Workers get assigned more work than they can possibly complete on their shifts — while being warned that overtime is out of the question. No intelligent employee would fail to get the message: Finish the job by whatever means necessary. “We worked off the clock pretty much every shift,” one employee told the Times. “The manager said if our jobs were not finished, we had to clock out and finish our jobs so no overtime would show up.”
Wal-Mart insists that these cases are unrepresentative of the company as a whole, and that any enterprise of their size is bound to have a few rogue managers. But the verdicts so far suggest a widespread problem. In 2000, Wal-Mart paid $50 million to settle an off-the-clock suit involving 69,000 Wal-Mart employees in Colorado. Two years later, a federal jury ordered Wal-Mart to pay back wages to 83 workers in Oregon for off-the-clock work. Some 40 similar class actions are pending, and in 2002, The New York Times reported on a “wide-ranging legal battle between Wal-Mart and employees or former employees in 28 states” over off-the-clock work. Last December, a California jury awarded $172 million to thousands of Wal-Mart employees who had been illegally denied lunch breaks.
Free-market advocates who defend the company argue that squeezing workers is an unavoidable reality of the discount retail business. But a look at the annual reports of Wal-Mart and its competitors points up a glaring difference between the companies. Target’s and Costco’s annual reports for 2004-2005 include no cases of off-the-clock work. Wal-Mart’s lists 44 in the last 10 years.
No girls allowed :- In 1986, Walton was sensing some pressure to appoint a woman to Wal-Mart’s all-male board. So he offered the job to Arkansas’ first lady, one Hillary Clinton, who accepted. She would later quote Walton’s pitch: “I think I need a woman; would you like to be her?” Today, Wal-Mart’s challenges in the field of gender equality are not so easily addressed. The company keeps its payroll costs down by paying women less than their male counterparts for performing the same work. Evidence also exists that it fails to promote women at the same rate as men.
In 2000, a female employee at a California Wal-Mart who found herself denied promotions filed a sex-discrimination suit. That case now involves nearly two million women, and, in 2004, it was certified by Judge Martin J. Jenkins, of the United States District Court in San Francisco as a class action. Discrimination is a difficult thing to prove, but the figures in the case do not look good. According to numbers compiled in 2003 by the plaintiffs, female store managers average slightly under $90,000 in annual income, while their male counterparts average slightly over $100,000. And while women make up 79 percent of the store’s department heads (an hourly position), only 15.5 percent are store managers. Judge Jenkins offered a strongly-worded assessment of the evidence:
“Plaintiffs present largely uncontested descriptive statistics which show that women working at Wal-Mart stores are paid less than men in every region, that pay disparities exist in most job categories, that the salary gap widens over time, that women take longer to enter management positions, and that the higher one looks in the organization the lower the percentage of women.”
Wal-Mart has argued that most of the decisions about hiring and promotion are decentralized. The plaintiffs contend, however, that a company in which headquarters chooses to regulate certain regional minutiae, such as individual store temperatures, also has the capacity to keep an eye on gender issues.
But is Wal-Mart really any different from its competitors when it comes to treating its female employees fairly? An extensive search of cases against Target doesn’t turn up any similar accusations, and while Costco does face a gender discrimination class action, it involves hundreds of women, not millions. Brad Seligman, who is lead counsel on the gender discrimination cases against both Wal-Mart and Costco, stresses that, even accounting for differences in size, Wal-Mart is exceptional. “I’m the first to concede that the Costco case is nowhere in the same league as the Wal-Mart case,” says Seligman. “I’ve done 50 class actions in my time, and Wal-Mart stands out above all of them, both in terms of the depth and pattern of discrimination and in their reaction to the charges.”
We care, but not that much:- Few discount retailers make it easy for workers to unionize. But it’s hard to find one that has been more aggressive, brutal, and openly hostile to unions than Wal-Mart. Sam Walton faced his first major union challenge in the 1960s. Two Wal-Marts in Missouri were on the verge of organizing, and Walton called in a lawyer named John Tate to stop them. In 1989, Tate, by then an executive vice president of the company, described the events to Fortune: “I told [Walton], ‘You can approach this one of two ways: hold people down, and pay me or some other lawyer to make it work. Or devote time and attention to proving to people that you care.'” Walton soon followed up with a management seminar called “We Care,” began to call employees “associates,” and introduced a widely-praised profit-sharing plan. Whether satisfaction or fear was at play, no union ever formed.
Since Walton’s death, however, the “hold people down and pay me or some other lawyer to make it work” method appears to have gained favour. In 2000, when workers in a Jacksonville, Texas, meat-cutting department successfully voted to unionize, Wal-Mart announced two weeks later that it would be closing its meat-cutting departments nationwide and switching to pre-cut meat. Four of the employees who voted in favour of the union were fired. (The company claims that the timing was coincidental and that the dismissals were unrelated, but a National Labour Relations Board judge disagreed. Wal-Mart is appealing the case.)
A year ago, employees at a Wal-Mart tire and lube shop thought they had enough votes to unionize, but the company fired one of the likely yes-voters and transferred in six likely no-voters. Again, an administrative judge ruled that Wal-Mart’s conduct had been illegal, but the goal of blocking the union had been achieved.
And in February 2005, the company announced that it would be closing a Wal-Mart in Quebec, one of only two unionized Wal-Marts in North America (the other is also in Quebec). Wal-Mart claimed the store was losing money, but it refused to release numbers.
Wal-Mart’s strong-arm approach is the product of a simple cost-benefit analysis. As Thomas Cochan, a professor at MIT’s Sloan School of Management, explains, “we have a law that is no longer serving its basic objective of providing people with the ability to organize. The incentives are too weak to keep companies from violating the law if they don’t want to comply.” The National Labor Relations Board can order an employer to rehire a terminated employee and to pay back wages, but it can’t impose criminal penalties or punitive damages. This is rather like telling a bank robber that the penalty for a failed heist is being required to return the money to the bank. And Wal-Mart takes full advantage of such laxity. Store managers are equipped with 56-page pamphlets titled “The Manager’s Toolbox to Remaining Union Free,” and representatives from the “People Division” in Bentonville are flown out at a moment’s notice if there are any signs of union activity. According to a 2004 report in The Nation, stores even administer personality tests to applicants to screen out potential union sympathizers.
Although Target and Kmart both take pains to head off workers who might organize a union — Costco, by contrast, has some unionized employees — Wal-Mart still leads the competition. Over the past 10 years, the NLRB or its administrative law judges have determined in at least 11 cases that Wal-Mart or individual Wal-Mart stores were engaging in unfair labour practices to prevent unionization, according to the agency’s website. In that same period, both Target’s and Costco’s records appear to have remained clean. An excerpt from one of the decisions against Wal-Mart gives a sense of the extent of the violations:
The Respondent, Wal-Mart Stores, Inc., its officers, agents, successors, and assigns, shall cease and desist from:
1. Promising to remedy employee concerns in an effort to undermine support for the Union.
2. Removing supervisors from their position in an effort to undermine support for the Union.
3. Engaging in surveillance of the union activities of employees.
4. Coercively interrogating employees concerning the union sympathies and support of other employees.
5. Installing new equipment to remedy employee complaints in order to undermine support for the Union.
6. Transferring employees into the TLE [Tire Lube and Express division] to dilute the support for the Union.
7. Transferring employees into the TLE to remedy employee complaints about inadequate staffing in order to undermine support for the Union.
8. Transferring employees out of the TLE in order to dilute the support for the Union.
The post-Sam era:- “Sam would have been proud” is the highest tribute that can be paid at the company Walton left behind. Increasingly, though, it’s also clear that what the writer Barbara Ehrenreich termed the “Cult of Sam” has played a large role in its current woes. Walton, in his day, played a hard game, but he knew when to hold back. Unions were fiercely resisted, but employees were treated respectfully. Wages were low, but people were made to feel they had a stake in the company. Bargaining with suppliers would be tough, but some holds would be barred. Walton’s instincts, in short, helped to keep the company’s foibles in check. Absent Walton, the redeeming features of Wal-Mart began to disappear. What remained were the relentlessness, the chauvinism, and, above all, the cheapness. As so often happens, the leader wasn’t doctrinaire; but the followers are. A Fortune article from 2003 notes how, at Wal-Mart headquarters, “nothing backs up a point better than a quotation from Walton scripture.”
It won’t be easy for Wal-Mart to change its ways. Wake Up Wal-Mart likes to point out that Wal-Mart could raise its average wages by two dollars an hour if it raised prices by only a penny on the dollar. But Wal-Mart is led by people whose lives are devoted to coming up with ways to shave a penny — or a half penny, or a quarter penny — off of a dollar. Wal-Mart’s chief spokesman summed up the difficulty in an interview with The New York Times. Change might be necessary, he admitted, but, “at the same time, we can’t change who we are — we can’t change what makes Wal-Mart Wal-Mart.”
But they may have to. Union-busting, gender discrimination, and off-the-clock work aren’t innovative; they’re illegal. And there are signs that the company is beginning to recognize the need for change. In a message to company managers posted on Wal-Mart’s internal website and published by The New York Times in February, CEO Lee Scott wrote: “If you choose to do the wrong thing… if you choose to take a shortcut on payroll, if you choose to take a shortcut on a raise for someone, you hurt this company. And it’s not unlikely in today’s environment that your shortcut is going to end up on the front page of the newspaper.” With any luck, Wal-Mart will work through its identity crisis and produce a company that’s a model for the industry. With even more luck, Americans will begin a thoughtful debate about balancing our needs as consumers and our needs as producers. Until then, we can focus on getting Wal-Mart employers to abide by the laws we have. In many instances, that alone would be a significant improvement.
· Give the company's organizational structure ?
ANS:- Walmart Organisation Structure
Wal-Mart follows a Divisional Organisation Structure at the top level and a matrix organizational structure at the store level.
The key divisions are:
· Wal-Mart Realty
· Wal-Mart International
· Wal-Mart Specialty stores
· Sam’s club and super-centres
Each division is given enough resources and autonomy and has its own functional workforce.
The benefit of this organizational structure is that companies are able to specialize its activities into self-reliant divisions, each capable of satisfying e.g. customer demands and changes within the business environment.
The detailed structure is given below:
· The head office is essentially the place for divisional or senior vice presidents.
· There are many Districts which in turn consist of many stores. Each district is run by a District Manager, who lives in the field. These District Managers have been replaced by “Market Managers” who will be responsible for a large number of stores.
· Reason for Market divisional structure – the company is working to increase the merchandising power of the individual markets, which are now based more on the economic landscape of an area, less on the physical geographies.
· Wal-Mart has rolled out a “Store of the community” program, which customizes everything in a store based on a community’s specific needs, from store layout to item
Selection, which has been illustrated in the new Plano, TX store.
The Market office is not only going to be home to the Market Manager, but to a series of Market Merchandisers in each of the general areas of the store: Food & Consumables, Fashion/Apparel, Homeliness & Headlines(the first two of which have already been created and filled in most, if not all, markets).
· Each Wal-Mart store has the same job categories, job descriptions and management hierarchy.
· At the bottom of the ladder, the primary entry level hourly positions are cashier, sales
Associate and stocker.
· The first step up is hourly Department Manager. Other hourly supervisor positions include Customer Service Manager(CSM), known as Check-Out Supervisor(COS) at Sam’s Club. The highest level hourly manager at Wal-Mart is support Manager.
· The next step up is to management trainee, a four-to-five month program which prepares employees for positions as Assistant Managers.
· The first salaried management position is Assistant Manager.
· Each Store has several Assistant Managers, Varying with the size of the store
· The next level is Co-Manager, a position used only in large stores.
· The top store position is Store Manager /General Manager in Sam’s Clubs
· The stores contain 40-50 different departments
· Based on the paper and the concepts learned in class, do an external analysis of Walmart. Support all your claims with pieces of scholarly evidence.
ANS:- External Environment
1. Political
Wal-Mart made sure that they knew of the political situation of every country they have operated in and the company has made sure that it has a good position with regards to political issues. Wal-Mart is every time ready to face any problems concerning the political sector. Some times Wal-Mart spent money in political issues.
2. Economic
Wal-Mart is economically stable for the past years. Its economical environment is doing well so they can try to improve their products and able to give best to their clients. It is not only the internal economic situation of the company should be taken in consideration but also consider the economy of the country, Wal-Mart checks first the economic status of the country they are operating in before they decide to open the branch in that country. The economic environment is a major factor in the strategies of discounts retailers. The United States GDP has been growing steadily since 2009 at 3.5% annually.
3. Social
Wal-Mart makes sure that the products they offer should be accepted by the society where they are operating in. Wal-Mart does not authorize the delivery of some products they know will cause outbursts or complains from different groups in the society. Wal-Mart is maintaining very good relationship with different sectors in the society although some sectors have problems with them. Wal-Mart also participates in social activities that tend to develop a better relationship between them, the clients and the society they are operating in.
4. Technological
Wal-Mart offered new innovations in its technological aspect and introduced new concepts with regards to its industry. Wal-Mart is using advanced cash register and better performing slot machines. Wal-Mart is using better security system. Since technology rapidly changes Wal-Mart keeps updating to up to date technology and keep an eye on the technology how its changes. If other companies use new technologies to provide services, Wal-Mart has a capability to adopt those technologies.
5. Environmental
Wal-Mart makes sure that the products they sell are proven to cause very less harm to the environment. Wal-Mart has developed certain regulations on what type of product they will sell in their store. Wal-Mart has also introduced better waste management systems that aim to reduce pollutants and provide a cleaner environment for the future. Wal-Mart makes sure that its waste system is developed to prevent any mistakes from the personnel.
6. Legal
Wal-Mart makes sure that it follows the different laws of a country where they are doing their transaction. The company doesn’t want to risk their client’s welfare and company image by breaching local and international laws Wal-Mart makes sure that the in the country where they are doing transactions in will have a legal basis and will be sanctioned by local or international legal organizations.
7. Market Competition
Wal-Mart is offering low price, low cost operations as well as their operational efficiency; Wal-Mart tops the list of retailers worldwide. While some retailers such as Dollar General offering a low price initiative with comparable low price offerings as Wal-Mart, Wal-Mart is still the leader in the retail market. With that said, Wal-Mart’s emerging market is being contested by other major players such as Carrefour and Metro. Retailers such as Carrefour and Metro moved into the international marketplace long before Wal-Mart.
8. Bargaining power of Buyers
The bargaining power of buyers highly influences Wal-Mart. Company is trying its best to keeps its prices low for the products and services they are providing. When the products are similar then the buyer will compare the price among suppliers which increases the competition and lead to lower prices and profits. Wal -Mart offers a wide range of products with the strategy of “Every Day Low Price” that appeal to large audience.
9. Bargaining power of Suppliers
The company makes sure that their suppliers have high bargaining power through helping them show their importance in the industry. Wal-Mart makes sure that the price being asked for a material has the same value as the same materials’ quality and durability. This will ensure that budgets will not be wasted. Wal-Mart holds a greater part of market share and suppliers know that, so the power of suppliers is low in case of Wal-Mart.
Influence of External Environment in Wal-Mart
1. Political
The political factor can negatively affect the Wal-Mart sales and profits because government can change the rules and the regulations at anytime which can be influenced Wal-Mart directly.
For example; the sale of Wal-Mart in February, 2013 was lower than the expected due to delay in income tax refunds. The sale of Wal-Mart globally can be influenced by those issues. Since to decrease working expenditure and gaining more profit Wal-Mart has operated in different countries Such as; Germany, Canada, China, Mexico, UK and India. If these countries face any political instability or any problem, it can reduce the market share of Wal-Mart.
2. Economic
Raise the price of products and services which cause to push inflation. This affects the performance of the entire company, not only on its relationship with the customers, but also affects the overall system. Purchasing power depends up on the economic condition. The management of Wal-Mart says that economic factor; both domestically and internationally might affect Wal-Mart financial performance unfavourable. In U.S and other countries higher fuel price, energy cost and higher interest rate, inflation, weak housing market, unemployment rate, higher debt and changes in tax law and overall economic slowdown could affect consumer demand for the services and products selling through Wal-Mart stores. Others factors like higher transportation cost, foreign exchange rate fluctuation, healthcare and insurance, and other economic factors can raise the cost of general and administrative expenses and harmfully effect the operations of Wal-Mart.
3. Technological
The Internet and e-commerce greatly influence the overall performance of Wal-Mart. Thus, it results the company to launch its online stores which enables the company to be connected with the customers. Just like the employees, as of now, customers are also changing in demands, particularly in the ways of buying and availing products and services. E-commerce or the process of buying and selling goods and services over the internet had opened a new way of connection between the buyers and the sellers.
4. Substitute product
Customer mainly influenced by low prices. Therefore, if cost of switching the product is low then threat of substitutes is higher. Normally, there are three factors that can influence the customer to switch the product such as; willingness of buyers to switch the product, performance and price. On the other hand, if the buyers become loyal to the products then threat of substitute can be decreased. In Wal-Mart “Every Day Low Price” strategy customers in touch with the company.
5. Customer
There are two types of customer in retail. The first is related to the customer’s price sensitivity. If each brand of a product is similar to all the others, then the buyer will base the purchase decision mainly on price. This will increase the competitive rivalry, resulting in lower prices, and lower profitability. The other type of buyer power relates to negotiating power. Large quantity buyers tend to have more influence with the firm, and can negotiate lower prices. Some factors affecting buyer power are as follows,
(a). Size of customer
Larger quantity buyers will have more power over suppliers in retail industry. (b). Number of buyers
When there are a small number of buyers, they will tend to have more power over suppliers. The Department of Defense is an example of a single buyer with a lot of power over suppliers.
(c). Purchase quantity and quality
Consumer can buy high quantity of product, if there will low price of product, because of the low price factors consumer will neglect quality factor.
(d). Consumer’s mentality
Mostly Rural Indian consumers buy products from local suppliers like, Kirana stores and urban consumers prefer both sources of supplier.
(e). Discount factor
It makes the consumer to buy product through internet from different companies with different types of discount like gift, cash discount etc.
6. Supplier power
The supplier’s power is highly influences Wal-Mart. When multiple suppliers are producing a commoditized product in retail industry, the company will make its purchase decision based mainly on price, which tends to lower costs. On the other hand, if a single supplier is producing something the company has to have, the company will have little leverage to negotiate a better price. The retail company is much larger than its suppliers, and purchases in large quantities, and then the supplier will have very little power to negotiate. There are some reasons when suppliers are more powerful such as;
(a). Supplier concentration
The fewer the number of suppliers for a products in retail, the more power they will have over the retailers. This is a real life situation.
(b). Switching costs
Suppliers of retail stores become more powerful as the cost to change to another supplier increases.
(c). Uniqueness of product
Suppliers that produce products specifically for a retailers and retailers will have more power than product suppliers.
7. Competitor
Costco and Target is the competitor of Wal-Mart in local market and they are the more significant threat to the market share of the Wal-Mart. Costco is the largest discount wholesaler which can compete with the Sam’s Club of Wal-Mart. Target can be the biggest threat in terms of competing with Wal-Mart in all levels. The low price strategy followed by the Target is the same strategy which is Wal-Mart using. Target is gaining recently more market share by adding more grocery options in stores and expended its stores internationally. Tesco is a British retailing company that is known to have gained large international and domestic market share. Tesco is the third largest retailing firm behind Wal-Mart and Care-Four. Like other retail companies, Tesco wants to have clients that will patronize their product. The company uses a loyalty program to gain the loyalty of its clients. Compared to Wal-Mart, Tesco has started to concentrate on the housing market but it has not been that successful as of late.
· Based on the paper, do an internal analysis of Walmart. Support all your claims with pieces of scholarly evidence.
ANS:- Internal Environment
Wal-Mart is the largest non-government employer and corporation in the world, Wal-Mart is bound to have an interesting internal structure put in place. The main Wal-Mart's Internal Environment is as given below,
1. Corporate Structure
Corporate structure was structured into three business units, Wal-Mart Stores USA, Sam’s Club, and Wal-Mart International. Wal-Mart is a public corporation, however the majority of the stock is still held by Walton family members. Therefore, there is lots of family involvement at the top level. The headquarters are in Bentonville, Arkansas, along with the control and decision making ability of the organization. There is a very hierarchical structure in place which only fuels the "good 'ol boys club" for top management. The other unique element in Wal-Mart's corporate structure is a strong culture that is fuelled by the Wal-Mart way of doing things, which as far as they are concerned is the only way.
2. Management
The top management and most support functions are centralized at the headquarters in Arkansas. Most of the top management started by working their way up for a store manager and making a name for themselves. It is assumed that in order to be an effective executive the individual needs to have the experience from the store in order to know what they are talking about. The control also lies in Bentonville, each day the store managers in each and every store must submit reports and update the inventory, where the results are sent to headquarters and reviewed.
3. Corporate Culture
Down to earth and committed to being the very best there is from top to bottom. Culture comes from the Sam Walton spirit, or known as the philosophy that people are the way to success from top to bottom. Buying out companies overseas seems to be a way into international markets for Wal-Mart. Sam Walton believed that a strong culture would help them to be a retail giant. He was once quoted as saying: "The reason for our success is our people and the way that they are treated and the way they feel about their company." Wal-Mart has worked to keep a small-town feel for its stores while becoming a retail powerhouse. Wal-Mart's primary concerns are low cost, low cost, and low cost. Wal-Mart really sells itself as being a great place to work, that its employees have a lot of fun at work, and are ready to help its customers out.
4. Research and Development
Wal-Mart is facing the challenge of continuing to grow when margins are continuously shrinking. In order to help their bottom line, Wal-Mart needs to introduce more products on its private label brand, where the margins are higher. In addition to the private label, apparel and house wares are an area with high margins that Wal-Mart will focus on increasing sales. Wal-Mart pays close attention to societal trends and supply chain technology. Tremendous research of competitors and their strategies in order to learn from their mistakes. Management monitors demographics & preferences of consumers.
5. Operations
Wal-Mart is connects each store with headquarters and over 2,000 suppliers so that they will never run out of or have too much inventory. Wal-Mart turns over their inventory more than any other retail store. Strength and weakness of operation of Wal-Mart are as follows,
Strengths
· Maintains excellent service with discount prices.
· Excellent up-to-date computerized inventory system.
· Strategically located distribution centres are a distinctive competency.
· Large number & size of U.S. stores achieves economies of scale necessary for low cost competitive advantage.
Weaknesses
· Slowing of comparative store sales growth indicates stores may need upgrading or are being located too close to each other.
· Customer ratings of staff friendliness & courtesy dropped 20% since 1999 – now below industry average.
· Lack of economies of scale in many international locations due to low market share.
· Acquired foreign stores tend to be too small with limited parking.
6. Human Resources
Wal-Mart is the largest non-government employer in the world. They realize that turnover is high in retail, but that their associates are one of their most important assets. Their written policy regarding associates is as follows: "They are encouraged to maintain the highest standards of honesty, morality, and business ethics". In order to become a Wal-Mart associate, candidates must take a multiple-choice test and select what are considered the appropriate "Wal-Mart" responses in order to be hired. There are and have been several cases regarding discrimination on the basis of gender (female) that females are often not hired or promoted to be managers. Some of the strength and weakness of Wal-Mart are as follows,
Strengths
· Wall-Mart jobs highly desired, e.g., new Chicago store.
· Corporate policy dedicated to improve employee involvement and expertise through seminars & training.
· Not unionized. Loyal employees.
· Special awards for employee performance.
· Employees encouraged asking questions and offering suggestions.
Weaknesses
· Drop in customer rating of staff is a red flag for potential people problems.
· Poor history of integrating staff of acquired foreign store chains into Wal-Mart.
· Poor history of promoting women & minorities into management led to law suits.
· Poor employee benefit package creates resentment.
· Anti-union stance may antagonize employees & customers – especially in other countries.
7. Finance
Finance is the back bone of any organization. It is most important to manage in good manner to the organization. Wal-Mart internal financial strength and weakness are given below,
Strengths
· Increasing sales easily supports debt.
· Over 40 years of record sales and profits.
· Earnings per share at record high levels.
· Return on equity above 20% since 2002.
Weaknesses
· Comparative store sales growth falling since 1999.
· Asset turnover (sales/total assets) in continuous decline since 2001.
· Long-term obligations for leases are high ($3.7 billion in 2006 from $2.0 billion in 1996).
· Return on assets declining.
· Stock price falling.
· Long term debt increasing to finance acquisitions.
9. Stakeholders
According to walmartstores.com, Wal-Mart is committed to engaging all of their shareholders, both internally and externally, to become the most sustainable, responsible company they can. Wal-Mart believes that by listening to, and partnering with their stakeholders, they are truly saving their customers money so they can live better. Wal-Mart’s stakeholder group differs, in an effort to adapt to the changing needs, and issues that continue to evolve in the marketplace. As Wal-Mart pursues their corporate goals, they further strengthen relationships with shareholders in order to be transparent and enhance their relevancy with the customers and communities they serve.
9. Information Services
Wal-Marts inventory system, Retail Link, is a web-based technology that ties ALL Wal-Mart stores to thousands of suppliers to allow for suppliers to be aware of what is needed by stores. Wal-Mart was the first chain to have computers in all of its stores and to have them connected to each other. This system connects to headquarters, which sends reports on what the store is selling, what's just sitting on the shelves, and what stores are selling the most items.
· What strategies did Walmart develop and implement in order to have a competitive advantage and above average returns? Support all your claims with pieces of scholarly evidence.
ANS :- Strategies Adopted By Wal-Mart
Generic Strategy – It is evident that the generic strategy adopted by Wal-Mart is Cost-Leadership. Wal-Mart adopted a very firm policy to maintain the low cost. It follows the Everyday low price (“EDLP”) strategy where it promises consumers a low price without the need to wait for sale price events or comparison shop. EDLP saves the effort and expense needed to mark down prices in the store during sale events and to these events; and is believed to generate shopper loyalty.
Porter’s Five Forces –
· Competition between rival companies
· Currently, there are three main incumbent companies that exist in the same market as Wal-Mart: Sears, K Mart, and Target
· Wal-Mart often has an absolute cost advantage over other competitors
· Wal-Mart has a mature industry life cycle and thus a tough competition is maintained
· Bargaining Power of Buyers
· The Individual buyers has quite a minimal power when it comes to Wal-Mart
· Consumer could shop at a competitors who offers comparable products at comparable prices, but the convenience is lost as the convenience
· Wal-Mart has a wide range of customers, but they most target the lower middle class citizens because those are the customers that are seeking the best quality for the lowest price
· Bargaining Power of Suppliers
· The high market-share of Wal-Mart doesn’t give a lot of power because by Wal-Mart threatening to switch to a different suppliers would create tactic to the suppliers.
· Another potential risk to suppliers is that Wal-Mart could vertically integrate
· Substitute Products
· When it comes to this market, there are not many substitute that offer convenience and low pricing
· Online shopping proves another alternatives because it is so different and the customer can gain price advantages because the company does not necessarily have to have a brick and mortal store, passing the savings onto the consumer
· Entry Barriers
· Entry barriers are relatively high, as Wal-Mart has an outstanding distribution
Systems, locations, brand name, and financial capital into the industry which has already some matured players
Competition of Wal-Mart
When we look at Wal-Mart from the US context, the main competitors are target & K-Mart. An interesting fact to note about these companies is that all three originated in different parts of the US but in the same year.
The comparison of Wal-Mart with K-Mart is given below:
A brief insight into K-Mart reveals the following points:
· K-Mart was very inflexible in terms of its business operations which led to the decline in their market share
· After 2005 merger with sears, the new CEO and the Board of Directors were not competent enough to take tough decisions on time which also contributed to the inflexibility in the operations in general
· The market scenario in the USA revels that it has more or less matured and there hardly seems to be any expansion horizons left. This has led to an intense competition among the rivals and the margins have been decreasing drastically
· K-Mart lacked an efficient Supply Chain Management System. Its policies with the various warehouses and other distribution intermediaries were not competitive enough. Thus K-Mart lost a large number of warehouses to Wal-Mart which in turn increased their Supply Chain Costs
· The K-Mart & Sears together hold 3rd position in terms of market share in the USA currently
· What recommendations do your group have for Walmart?
ANS :- Recommendations of Wal-Mart
There is lack of inter-divisional cooperation. Therefore it can switch to a match between cooperate-level strategies & multi-divisional structure: i.e. it can change to cooperative form of Divisional Structure.
Some of the benefits are :-
· Cooperative Form: Organizational structure using horizontal integration to bring about inter-divisional cooperation.
· Structure integration creates tight links among all divisions
· Divisions formed around product, market or both, Therefore there’s greater synergy within the company.
· Cooperate office decides strategies planning, HR, Marketing, etc to eliminate redundancy
· Links resulting from effective integration mechanisms support sharing of both tangible and intangible resources.
· Rewards are according to division and overall company performance
· Centralization is one integrating mechanism that can be used to link activities among divisions, thus allowing the firm to exploit common strength and share competencies.
· Culture stresses cooperative sharing.
